Man's best friend

Not a dog, but a mobile phone

SATURDAY morning in Myeong-dong, and the huge shopping district in the centre of Seoul, South Korea's capital, prepares for a long day and night. As the hawkers move in with their barrows, a man selling fried squid sets up his stall next to a woman displaying shawls with Louis Vuitton logos. Real or fake, just about every fashion brand in the world can be bought here, if not from the hawkers, then certainly from the hundreds of stores, shopping malls or the massive Lotte department store. A solitary preacher stands outside a Starbucks singing hymns, as if to steer the swelling crowds away from the path of Mammon. Eventually he packs up and leaves, drowned out by the music blasting from the sound systems of trendy boutiques. This is consumerism at its most strident. So where is the internet?

It is all around. Start with shops, many of which display signs showing their website address. Then watch the shoppers, especially the younger ones. They have acquired new skills: walking through a crowd while studying the screen on their mobile phone, or examining a rail of clothes while using their thumb to text a friend. Some will also be checking their bank accounts, getting sports news, keeping track of an online computer game, or downloading a new ring tone or avatar—a cartoon-like character that will appear as their digital representative on mobile-phone screens and in online games. Plenty will also be listening to music downloaded from the internet. South Korea is one of the most wired countries in the world. That is why Meg Whitman, the chief executive of eBay, the biggest online auctioneer, sees the country as a “window into the possibilities” of what might happen when high-speed broadband services are widely adopted in other places too.

In 1960, South Korea had only one telephone for every 300 people—barely one-tenth of the world average at the time. Today, more than 90% of households have a fixed-line phone, three times the world average. Moreover, three-quarters of the population carry mobile phones, which means that pretty well everyone has one, apart from tiny tots and a few elderly people. With government encouragement and the benefit of a densely populated, mainly urban environment, South Korea has been relatively easy to wire up. The country boasts one of the highest internet-penetration rates in the world, with more than 31m of the 48m population now having access to the web, most of them via high-speed services. Apartment blocks display government notices by the front door certifying the speed of their internet connection.

Those connections are about to get even faster. In January, the government licensed the country's three main telecoms firms, SK Telecom, KT and Hanaro, to offer a new high-speed wireless internet service called WiBro. From next year, this will allow mobile users to surf the internet at much higher speeds than they do now, as well as more reliably. Somewhat alarmingly, the Ministry of Information and Communication (MIC) says it will work even in a car travelling at 60km an hour.

For the country's consumer-electronics makers, this vibrant home market is an invaluable development laboratory. Samsung Electronics, South Korea's biggest consumer-electronics company, has already produced a mobile phone especially for watching high-quality video. Its rival, LG Electronics, has even unveiled one with a built-in personal video recorder, which automatically switches to “record” if the user needs to take a call. Lots of other new gadgets are coming, including phones that can read the radio-frequency identification tags that will eventually replace the barcodes attached to goods. These phones, says the MIC, could be used to check the expiry date of fresh produce, say, or pick up a signal from a poster advertising a new movie, which would then prompt you to download a preview.

There seems little doubt that South Koreans will flock to use many of these services: the MIC expects the number of WiBro subscribers to rise to over 9m within six years. But the way the locals use these new technologies may not translate perfectly to other countries. Watching video on your mobile phone already looks like a winner in Japan, because many Japanese face long commutes on public transport. But if you are stuck in a traffic jam on Interstate 405 on your way to work in Los Angeles, you might do better to tune your phone to pick up high-quality satellite radio instead.

E-mail is so last week

A more intriguing question is what will happen to services that many people now take for granted. For instance, many young South Koreans would be bemused by mobile devices with keyboards such as the BlackBerry, which is popular with businesspeople in America for keeping up with their e-mail. The South Koreans already have handsets that can do this, but they do not think e-mail is particularly cool, and they do not like the spam that comes with it. They prefer to send text messages, which are more immediate and are certain to be delivered instantly. South Koreans in their teens and 20s increasingly look on e-mail as an old and formal means of communication, according to one study. “You would exchange e-mails with your bosses, but not your friends,” says a young South Korean marketing assistant. The arrival of more features could reinforce this trend further: a new Samsung phone uses voice recognition to convert speech into text.

However, some of the new features that mobile phones will offer look like being universally popular. Walk into the experimental coffee bar at the MIC's offices in Seoul, and the screen of a handset lights up with the menu. You can order two cappuccinos, pay electronically and receive a receipt, all on the handset. Mobile phones are already configured for some basic e-commerce activities such as downloading music, and in Asia a few can already be used to make some purchases in shops. “There is a future, not too far away, when the only thing you will need to leave home with is your mobile phone, because it will be your wallet and your key and all the things it already is,” says David Wheldon, global director of marketing and brand communications for Britain's Vodafone, the world's biggest mobile operator.

This summer, a new service will begin in Spain, and later spread to other European countries, to make mobile payments easier. Called Simpay, it is jointly owned by some of Europe's largest mobile operators. Simpay is designed to function as a non-profit organisation with a common brand. The idea is that eventually all of Europe's 70m mobile users will be able to click on a “buy with Simpay” logo whenever they use their mobiles to surf the web. Any purchases will then be charged to their mobile bill. If Simpay is anywhere near as successful as PayPal, eBay's online payments system, it might give the banks a jolt: PayPal now has more than 60m account-holders worldwide.

The leap from paying for a music download to paying for your groceries electronically is not very big. As mobile phones are increasingly used for shopping, their appeal as a medium for reaching consumers at the point of purchase will grow. Along with services such as global positioning systems, which some handsets already provide, and software that can monitor online behaviour, a handset could offer all kinds of novel things—even telling you where to find that item you are searching for in the supermarket, and that it is on special offer.

Mobile-media consumption will overturn many assumptions about marketing

“Anything that is screen-based will be able to be used as an ad-serving mechanism,” says Andy Jung, director of advertising and media for Kellogg's. Other marketeers agree. The mobile phone is a very personal device: a faithful companion that nearly always stays with its owner. Technologists used to worry about how to win the battle for the digital home, but perhaps the bigger battle is for the individuals who live in it. Mobile-media consumption will overturn many assumptions about marketing, says Steve Morris, the chief executive of Arbitron, a New York-based media and market-research firm. “The notion that all this stuff takes place only in the home is so outdated.”

The mobile phone will become an even more powerful marketing medium, says Vodafone's Mr Wheldon. “But it is one where we proceed with gigantic caution.” People may use their mobile services differently in different countries, but consumers everywhere have one thing in common: they never seem to have enough time. If too many ads are pushed on to the screens of handsets, users could become dissatisfied with their service provider and get very annoyed with the advertisers, as they already do about “pop-up” ads on the internet. Whichever way mobile-phone marketing evolves, Mr Wheldon says it must be “hugely respectful” of users and their time. Another victory, then, for consumer power.

The mobile phone is itself a powerful brand builder, as Samsung's success has shown. From near-bankruptcy after the 1997 Asian financial crisis, Samsung is now neck-and-neck with America's Motorola as the second-biggest maker of handsets after Nokia. In terms of market capitalisation, the South Korean company is worth a lot more than Sony, which has long been the king of consumer electronics. Samsung was seen as a producer at the low end of the price spectrum and had a poor reputation for quality, especially in South Korea itself. Yet by concentrating on making handsets that worked better than its rivals', at first in its home market and then for export, it improved its image. Good-quality handsets got people to look at Samsung's other products, such as digital cameras and flat-screen televisions. This was reinforced by astute marketing, using mainstream advertising as well as non-traditional methods, such as the product placement of futuristic gadgets in “Matrix Reloaded”, a cult movie. It was all part of the strategy of Samsung's chief executive, Yun Jong-yong, to move the company's brand upmarket and sell products that could attract a premium rather than slug it out in the discount chains.

This strategy has not escaped the notice of Chinese producers. Few people doubt that, given enough time, some Chinese brands will become world leaders. But a number of Chinese firms seem anxious to short-cut the process by acquiring western brands—although not necessarily very exciting ones. China's TCL, for example, has merged its TV business with France's Thomson, whose brands include RCA. Lenovo is taking a controlling stake in IBM's PC business, and Shanghai Automotive has been looking at Britain's MG Rover, which BMW discarded. Both Haier and Kelon, which make domestic appliances, also have global ambitions.

Give them what they want

There are three important stages in building a strong brand , says Bain's Mr Markey. The first is to have a deep insight into what customers really want—one that goes well beyond traditional market research. The second is relentless attention to making such products. Get the first two right, and the third follows as a matter or course: consumers become part of the marketing and sales force. This happens, says Mr Markey, because they are “so enthusiastic about a product or service they can't help but tell their friends and colleagues about it.” Word of mouth, as every marketeer will tell you, remains the most powerful form of product promotion.

But what if your brand has become tarnished and needs polishing up? That is the task confronting Philips, which in the 1990s lost its way in the consumer-electronics business. A sprawling European multinational that makes everything from light bulbs to televisions, it has been through numerous bouts of restructuring. What are its chances of gaining a new image against companies such as Samsung, and redoubled efforts by Japan's big producers, such as Sony and the Matsushita group, whose brands include Panasonic?

Andrea Ragnetti, Philips's new marketing boss, thinks it can be done. He previously worked at P&G and Telecom Italia, and has fastened on a hugely frustrating aspect of the digital world: getting all this stuff to work. Some products have become extremely complicated, with instruction books bigger than anything else in the box. Philips cites studies saying that some 30% of home networking products are returned because people cannot get them to work, and almost half the people thinking about buying a digital camera delay their purchase because they fear they might find it too complicated. So Mr Ragnetti's plan for Philips is to make things easier. His motto is “sense and simplicity”. This is not just a marketing slogan: all products, from heart defibrillators to coffee machines, must become easy and intuitive to use.

Steve Jobs, Apple's chief executive, is already brilliant at turning consumers on. Apple has long had a small but fanatical following in the PC business. It has now become the leader in portable music, a business once dominated by Sony with the Walkman. Apple's stylish iPod is the most popular digital player, with more than 4.5m sold in the last quarter of 2004 alone, and it links seamlessly with Apple's music-download service, iTunes, which sells more than 1m songs every day. In January, Mr Jobs unveiled the Mac mini, a basic version of his Macintosh computer selling at $499. With this low-priced machine, Apple thinks it can tempt people who may have bought an iPod (and become fans of the company) to ditch their Windows-based PC and switch to an Apple machine, which uses a different operating system.

Another company that has used its brand to venture into new territory is Dell. The conventional wisdom was that selling PCs direct to consumers would not work: they were complicated products and customers would want to take a good look at them in a shop before parting with their cash. That turned out to be wrong. Much the same concerns were aired last autumn when the company decided to expand into consumer electronics and sell its own line of 42-inch flat-screen high-definition televisions. At $2,999, these were several thousand dollars cheaper than some rival products in stores. But surely people would want to see the picture quality before they bought?

Once again, not so. Consumers have become sophisticated and confident enough to understand technical specifications and did not need to see the picture, says Dell's Mr George. Many also put their trust in Dell's brand: if the Texas company could build good computers, it would probably make decent TVs too. This reveals another important change in attitude. “Consumers just don't have these historical brand affinities in the way they used to have them,” adds Mr George. But he is aware that brand value carries risks too: “We know it could be taken away from us at any moment.”

An important part of Dell's success has been that along with its direct-sales model it offers a customisation service. If a customer orders a PC online, he or she can ask for it to be configured in all sorts of ways. Yet when the order is placed, none of the components are in the factory. Within a day or so they have arrived from suppliers, been assembled into a PC according to the customer's specification and sent off to the delivery address. Carmakers may never be able to build a business as lean and as flexible as this, but they are working on similar lines to keep their customers happy.